Date of Degree

2-2014

Document Type

Dissertation

Degree Name

Ph.D.

Program

Business

Advisor(s)

Donal Byard

Subject Categories

Accounting

Keywords

Debt Contracting, International Accounting Standards

Abstract

I examine the relationship between contracting parties' familiarity with one another's accounting information and the terms and structure of debt contracts. I use the differences in generally accepted accounting principles (GAAP) among contracting parties domiciled in different countries as a proxy for how familiar a lending bank will be with a borrower's accounting information. I find that a larger difference between the GAAP of the lender and the GAAP of the borrower is associated with a higher credit spread and higher fees. I also find that a larger difference between the GAAP of the lender and the GAAP of the borrower is associated with a more concentrated loan syndicate, suggesting a closer monitoring relationship between the borrower and the lender. Finally, I find that when there is a larger difference between the GAAP of the lender and the GAAP of the borrower, banks rely less on financial covenants as a contracting tool. Moreover, banks tend to alter the types of covenants they write, relying more on capital-based financial covenants and less on earnings-based covenants. My results are consistent with banks experiencing information problems when contracting with parties whose accounting information they find to be unfamiliar. These results provide new evidence on the importance of financial reporting for debt contracting.

Included in

Accounting Commons

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.